Bitcoin core developer to Mt. Gox: ‘Bitcoin is not broken’

Bitcoin prices dropped Monday morning after the exchange Mt. Gox sounded the alarm bells over a problem it said affects all transactions sent to a third party. But a bitcoin core developer pointed out the issue has been documented since 2011 and is unlikely to result immediate changes in the bitcoin code.

“First and foremost, bitcoin is not broken. There is no fundamental flaw in bitcoin,” Jeff Garzik, a bitcoin core developer, told MarketWatch in an email.

The issue discussed by Mt. Gox is called “transaction malleability.” Mt. Gox explains the phenomenon in simple terms here:

A bug in the bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent.

But Garzik, who is employed by the bitcoin payment-processor BitPay, said transaction malleability can be avoided by bitcoin exchanges such as Mt. Gox and is unlikely to prompt “emergency updates to core bitcoin software.”

“There are certain security practices that sites like Mt. Gox need to follow,” he said. “Most notably, customer support staffs and related software must not assume that transaction IDs are unchangeable, prior to being confirmed in the blockchain. Confirmation in the blockchain is bitcoin’s core security mechanism.”

bitcoincharts.com

Bitcoin takes a dive.

Mt. Gox acknowledged in its statement that the issue had been known for a while, but said it had been “largely ignored.” The Mt. Gox statement came after the exchange on Friday halted bitcoin withdrawals, or transactions from a Mt. Gox bitcoin wallet to an external bitcoin address. News from Mt. Gox carries weight in the bitcoin universe because it is considered the oldest bitcoin exchange, even though it has given up market share to competitors like Bitstamp in recent months.

Bitcoin is a virtual currency that has been promoted as a way to transmit money around the world. As its price jumped from around $13 in January to more than $1,000 in November, it attracted attention from both regulators and high-profile investors. Bitcoin is created through a process called mining that pits several computers against each other in a race to solve a cryptographic problem. The mining process also verifies transactions in the bitcoin network.

Bitcoin traded at $610.83 on Mt. Gox in recent trade, paring earlier losses but still down from around $800 late Friday. On the exchange Bitstamp, bitcoin bought $679.59 recently, versus around $760 late Friday.

Bitcoin withdrawals that transfer the virtual currency to an external bitcoin address remain suspended on Mt. Gox until the issue has been resolved, but customers can still withdraw bitcoin that has been exchanged for another currency, such as dollars or euros, the exchange said.

The Bitcoin Foundation issued a statement Monday titled “Contrary to Mt. Gox’s Statement, Bitcoin is not at fault.”

Mark Karpeles, chief executive of Mt. Gox, serves on the board of the Bitcoin Foundation.

MarketWatch sent an emailed request more information from Mt. Gox, which is based in Japan, on Monday morning. The post will be updated if we get a response.

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